One other thing she could do, which is a track that I am on, is to buy the houses as you talked about. Then, using the equity that has built up through market appreciation and paying down the principle, sell the older homes to buy newer homes free and clear. Of course the older houses are being paid for by my tenants.

So, if I have 20 houses that are older, but I bought right and have used as rentals and let them "grow' in equity, when all is said and done I want to have them pay off 10-15 newer houses.

This will be after I 1031 then into the newer houses to defer the taxes. I am not real clear on the whole 1031 thing, but I am sure Robert is.

Then if I rent them and they are free and clear...

With todays interest rates if you can put a 15 year note on a house and pay 7% int. you can rent them out for right at or a little more than the underlying payment.

My overall goal is to have 20 houses free and clear, pretty houses, that bring in at least $1,000 a month.

Just some thoughts...

Terry (Houston)

> In the latest issue of The Entrepreneur's
> Hotsheet we linked to a post which
> contained a story about a woman who became a
> millionaire in 7 years. See the story here:
> http://www.creonline.com/wwwboard/messages/49935.html
> While the story revealed what she did - in
> general - it doesn't tell HOW she did it. It
> does not reveal the Investment Math behind
> it.

> This is my take on what she did...

> She bought one property (home, apartment,
> condo, townhouse, etc.) per year using

> Interest Only Loans! Bought correctly,
> the rent should be enough to cover interest,
> insurance, taxes and repairs.

> Assuming it covers these things exactly,
> what then happens is

> the properties go up in value. The
> difference between what she owes and the
> current value of the property is its Equity
> . And that Equity is hers.

> After ten years (or seven in her case), her
> first property should have doubled in value.
> If she paid $100,000 for it, it should now
> be worth $200,000. But she only owes
> $100,000 on it. So $100,000 would belong to
> her.

> Her second property (the one she bought in
> year two) would nearly be doubled and would
> certainly be doubled the following year.

> Adding up the value of all her properties,
> you will come up with over one million
> dollars of worth. Possibly even two million.
> Of that, her share would be quite
> substantial - $700,000 or more, depending on
> how fast the property is increasing in
> value. (At 10% increase per year, the value
> will double in about seven years. At 7% per
> year increase, the property will double in
> about ten years. At 5% increase, the
> property will double in about fifteen
> years.)

> For example: Here is the value and equity of
> a property bought for $100,000 with $10,000
> deposit, over a fifteen year period.

> Year 1: $105,000 with $15,000 equity
> Year 2: $110,250 with $20,250 equity
> Year 3: $115,762 with $25,762 equity
> Year 4: $121,550 with $31,550 equity
> Year 5: $127,628 with $37,628 equity
> Year 6: $134,009 with $44,009 equity
> Year 7: $140,710 with $50,710 equity
> Year 8: $147,745 with $57,745 equity
> Year 9: $155,132 with $65,132 equity
> Year 10: $162,889 with $72,889 equity
> Year 11: $171,033 with $81,003 equity
> Year 12: $179,585 with $89,585 equity
> Year 13: $188,564 with $98,564 equity
> Year 14: $197,993 with $107,993 equity
> Year 15: $207,892 with $117,892 equity

> Note that the proprty is worth $207,000.
> It has $117,892 in equity and the borrowed
> $90,000 is still owed because it was an
> interest only loan.

> Note also that during this time period,
> while the repayments would have stayed
> relatively the same the rent has been
> increased. So if the property was in a
> slight negative cash flow in the beginning,
> it probably became a positive cash flow
> property after two years because of rent
> increases.

> Note also that if the porperty was turned
> into a Share Accomodation type of property,
> the overall rent collected will be higher.
> For example: a 2 bed apartment might rent
> out for $480 per month ($120 per week), but
> you could justify $400 per month ($100 per
> week) per person when renting it
> individually in a "share"
> situation.

> Back to the example property...

> After 15 years, the property value has more
> than doubled and it is producing positive
> cash flow.

> IF one such property had been bought per
> year, then each property would be at a
> different stage of the growth table. The
> property bought in year 2 would have the
> value matching the year 14 example.

> Anyway. After 15 years, you have a whole
> bunch of property. Some will be in such a
> state of positive cash flow - the properties
> near double their value - that in theory you
> can now RETIRE.

> To retire, you Borrow the equity back out of
> the oldest property on an interest only
> loan. The property's existing rent should
> more than cover that "loan."

> You use this money to live on.

> The following year, you borrow the money out
> of house number two - as it has now doubled
> in value and its rent will also more than
> cover the borrowing.

> The following year, it's house number
> three's turn.

> Each time, the loan is interest only. And
> the property's rent should more than cover
> it.

> By the time you have gone through your
> collection of properties, the first property
> should have doubled in value again.

> In our example, that means it should be
> worth about $432,379. Of that, you have the
> original $90,000 loan and the $117,892
> equity you took out - if you could only get
> 80% of that equity you would have gotten
> $94,313 and may have elected for $90,000
> because it's even. Assuming you only took
> $90,000 out, your total borrowing is now
> $180,000 with $252,379 equity! That's over
> one quarter of a million dollars in equity.
> Waiting for you to borrow out again, if you
> want to.

> Note that while you do have the option of
> borrowing the equity back out of each of
> your properties after they have doubled in
> price, many will be throwing off substantial
> positive cashflow because of the increase in
> rent over the years.

> Note also that while this sounds simple -
> and does not require any
> "creative" financing - that
> properties increase in value at different
> rates in different part of the country and
> in different parts of a city. And you will
> need to pick your properties wisely. You are
> only buying one property per year so there
> is No Rush. Also, finding your property will
> require research on your part. And cash flow
> analysis. You need to be able to figure the
> income the property will make you (after all
> expenses - interest, taxes, insurance,
> repairs).

> Well, that's how I believe the woman in the
> story became a millionaire and how you can
> use the same method to also become a
> millionaire and to retire, if you want.

> Final note: If debt scares you, this method
> is not for you. On the other hand, if you
> can handle the debt from an emotional point
> of view, then this method might be right up
> your alley.

> Michael Ross

> P.S. Hopefuly Robert Campbell will jump in
> here and share some of his "timing the
> real estate market" knowledge.